As your browser does not support javascript you won't be able to use all the features of the website. We strongly recommend you to enable the javascript in your old browser's settings or download a new one.

Is JPMorgan Chase a Good Stock for Beginning Investors?

Chase Tower in Phoenix, Arizona. Image source: iStock/Thinkstock.

Beginning investors should wade carefully into stocks, picking ones that minimize the risk of capital loss while at the same time offering a reasonable opportunity for future gains. One bank stock that meets this criteria is JPMorgan Chase(NYSE: JPM).

Why JPMorgan Chase is good for beginning investors

With $2.5 trillion worth of assets on its balance sheet, JPMorgan Chase is the biggest bank in America. This gives it the resources needed to stay on the cutting edge of the financial services industry, which is under assault right now from financial technology companies.

JPMorgan Chase's heft also offers economies of scale -- the bigger a company is, the easier it is to operate efficiently. In the third quarter of this year, JPMorgan Chase's operating expenses consumed 59% of its net revenue. Most other banks tend to spend well over 60% of their revenue operating their businesses.

Thanks in part to its size, moreover, JPMorgan Chase's stock is highly liquid. An average of 13.5 million of its shares have traded hands each day over the past three months. If you were to buy shares of the New York-based bank, you can thus rest assured that you won't have any problem subsequently unloading them.

JPMorgan Chase is one of the most stable banks in the United States, too. Its performance through the financial crisis confirmed this. While hundreds of banks failed in the downturn, and countless others would have failed but for the government's assistance, JPMorgan Chase was in such a strong position that it not only survived the crisis, but actually thrived because of it.

In 2008, the government went to the Jamie Dimon-led bank and asked for its help in rescuing Bear Stearns, the fifth largest stand-alone investment bank at the time. Later that same year, JPMorgan Chase stepped in to rescue Washington Mutual as well, taking the by-then failed savings and loan institution off the FDIC's hands.

Finally, though not unrelated to the first four points, JPMorgan Chase is very capably run. Its CEO, Dimon, may be the finest banker of this generation. And you needn't take my word for it. Warren Buffett has repeatedly expressed admiration for Dimon, calling the bank CEO's latest interview "off the charts." Not coincidentally, one of Buffett's lieutenants at Berkshire Hathaway recently joined the JPMorgan Chase board.

JPMorgan Chase CEO Jamie Dimon. Image source: JPMorgan Chase.

Risks related to JPMorgan Chase stock

There are of course risks associated with JPMorgan Chase. Regulators have expressed in the past that they want universal banks (banks such as JPMorgan with both investment and commercial banking operations) to simplify their business models. One way regulators are attempting to accomplish this is to put added regulatory pressure on the nation's biggest banks, which could thereby depress their profits.

Along these same lines, banks that have major Wall Street operations, as JPMorgan Chase does, face heightened risk from their trading activities. JPMorgan Chase learned this first hand in 2012, when a single trader in its London offices lost over $6 billion by making a wrong-way bet on derivatives tied to the health of American corporations.

That said, Dimon is reputed to be obsessive about risk, and, at least in my opinion, there's every reason to believe that the bank's mistake four years ago won't be repeated anytime soon. This means that the primary driver of JPMorgan's earnings going forward will be higher interest rates, which are bound to materialize at some point.

In short, if you're looking for a good bank stock to buy as a beginning investor, you could do a whole lot worse than starting at the top with JPMorgan Chase.

A secret billion-dollar stock opportunityThe world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

WhoTrades Ltd, its affiliates and partners are not responsible or liable in any manner for any Content posted on whotrades.com. WhoTrades Ltd does not endorse, support, sanction, encourage, verify, or agree with the comments, opinions, or statements of third parties displayed on or transmitted via the site. Any opinions expressed on the website as to the future direction of prices of specific investments are purely opinions, do not necessarily represent the opinion of WhoTrades Ltd, and are not guaranteed in any way. In no event will WhoTrades Ltd, its affiliates, and partners have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided verbally or through the Internet, or any delays, inaccuracies, errors in, or omissions of information.

Your use of this webpage is conditioned to your acceptance of ALL our Disclosures and Terms of Service.